The 9 Focal Points of Multifamily Real Estate Investing Education
The multifamily real estate investment market presents unprecedented opportunities of growth for investors. In 2019, the annual yield on 10-year treasury notes clung to a mediocre 1.5% with assumptions that the private equity real estate will continue to adhere to low-cost capital margins.
But, forecasts have already predicted that by the end of 2020, the multifamily real estate investment sector accounts for 60% of all commercial lending dollars, touching the $700 billion mark according to the Mortgage Bankers Association (MBA). The body has even gone ahead and estimated its forecast on lending activity for multifamily assets, to the record-breaking tune of $390 billion! Hence, multifamily real estate investing education can open your eyes to a solid stream of income
If you are planning to dip your toe in multifamily real estate investing education, then there is no time more opportune than the present, and the 10 focal points below will tell you how and why.
A Quick Guide: Multifamily Real Estate Investing Education
Easy financing due to low risk in multifamily real estate
Mortgage banking professionals can vouch that government-sponsored enterprises funded a staggering $142 out of $339 billion of the multifamily loan capital lent in 2018- which is at least 42% of the annual multifamily loan capital.
Banks are favoring debt capital for multifamily apartments over the other types of property. New updates from the MBA’s 2018 annual report suggest that multifamily bank lending growth broke the $100 billion ceiling.
Generous source of income
A large factor behind the magnanimous liquid loan market generated by government-sponsored enterprises is the fact that multifamily real estate has a failsafe that is not a constant in every other sub-markets such as office, or retail space; primarily, a diversified tenant pool. Debt contributes only to 60-80% of the net capital in any given private equity deal, with investors being responsible for the rest.
In commercial sectors, multi-tenant options are not always cost-effective as it is not the easiest to replace tenants. On the other hand, as per the CBRE, multifamily residential properties report an all-time low vacancy rate. They have an average five-year cash flow of an enviably lucrative 8.58%, as per the NCREIF Property Index.
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Strong demand for rentals in multifamily housing
Spike in tenant demand has kept multifamily housing in the lead among all the real estate sub-sectors. One of the most important lessons of multifamily real estate investing education is that Housing is a necessity for all, in any given economic condition.
In the present economic climate, there is a shift in preferences from condominiums to apartment developments because as per the Federal Reserve Bank of St. Louis homeownership has dropped to a record 1970s and 80’s-like low. The rising trend among ‘baby-boomers’, ‘millennials’, and Gen Z- the biggest cohorts in the market, is to opt for rentals as opposed to homeownership.
Apartments as luxury statements
The quality of apartment housing right now has improved substantially, which has given tenants with families a lesser incentive to focus on owning condos. Today, multifamily apartment housings are made sustainably, they focus on the use of green space, offer entertainment options and amenities for the apartment community.
Even the apartment designs of today are a token of modern, urban housing, with generous use of technology to curate a positive experience for residents. What with downsizing proving a hefty cost of homeownership and customers opting for rentals, multifamily real estate options are outclassing condominiums in demand.
Multiple choices for every price point
Let this multifamily investing course be the first to tell you that multifamily assets also provide a lucrative multi-option product offering with multiple price points, because of demographic-specific benefits for tenants- e.g., subsidies to landlords who rent the property out to police officers, teachers, and similar median-income tenants.
The expansion in the target demographic for multifamily housing has also been pivotal in spiking the demand for the older Class B and C multifamily asset types. Private equity real estate partners are successfully engaging high-paying tenants by assuring them capital for value-added personal renovations that justify the rent scale.
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Hidden value appraisal
Similar to the practice of flipping houses, multifamily real estate owners are managing their buildings efficiently without shelling out for any major renovations. Capital improvements and property enhancements are good ways to reinvest in a property, as they help marshall higher rental prices.
These improvements do not even have to be exorbitant property modifications either- the added water thermostat upgrades, or security camera installation, or locker system reinforcements, are sufficient. Tenants are usually happy to pay the resultant incremented rent value if they benefit directly from renovations.
Proven record of high, extended returns
As per the NAREIT index, Multifamily properties have outperformed the other commercial realty sub-sectors simultaneously for the last 5 years. The rents also keep pace with inflation by offering year-long lease terms that eventually benefit from the improving market conditions.
Residential property rents also have the option to move higher with hikes in wages, unlike multi-year commercial property deals that are usually locked for multiyear leases. The absence of volatility akin to the commercial or retail property sector for over a quarter of a century has allowed multifamily properties to poise as risk-adjusted investment options in the realty market.
Improved return potential from growth markets
Multifamily investments in smaller, fast-growing markets are beneficial for your multifamily investment portfolio. The larger cities have a low affordability ratio which gives little room for growth. Plus the returns are not indicative of the variety of risks that the investors face here.
Thus, it is more favorable to invest in smaller markets where growth is high due to low affordability and the resultant high occupancy. The National Association of Realtors also shares the same notion with testimony from the current market trends.
Immediate payback from refinancing
Lastly, with multifamily investments, investors have the option to refinance their loans by borrowing against the property’s higher value. It also works in their favor as there are no taxes on the capital gains that come with the sale of such property.
Hence, multifamily investors have the option to refinance their loans several times throughout their ownership while availing tax-free returns every time! We cannot stress the lucrativeness of multifamily asset returns enough in this multifamily investing course.
Thanks to the numerous financial leniencies such as safeguarded cash influxes from tax returns; or the prevalent and projected low-interest rates and vacancy rates; or even the debt capital accessible to private equity investors- the verdict is always in favor of focusing on multifamily real estate investment.